Ogilvy Overbilled IBM by "Millions" for Ad Media, an Exec Claims

Neo@Ogilvy, the digital unit of ad agency Ogilvy & Mather, overcharged IBM millions of dollars since 2006 by doubling some of its media bills, according to a lawsuit filed in a New York federal court.

The suit raises an old bone of contention in the advertising business: The difference between what media vendors charge ad agencies to place ads, and what clients ultimately reimburse their agencies for media costs. Generally, contracts between advertisers and their agencies require their media bills to be paid at net rather than gross price. Any kind of volume discount, rebate or price advantage ought to benefit the client, not the agency. In return, the agency gets a flat fee or a commission for placing the ads.

Weaseling the way to pure profit
But agencies have a history of trying to weasel their way around this requirement. If they can overcharge clients for the media they buy, that's pure profit for agencies. Most famously, Grey Group's London office once built a volume discount scheme into its business model, overcharging Procter & Gamble (PG), Mars and British American Tobacco (BAT) millions of pounds. Similarly, Interpublic (IPG) was forced to return $250 million or more to its clients when the SEC caught the company booking media rebates as revenue when they should have gone back to the clients whose cash earned them.

In the Ogilvy case, Audrey Gladitsch, an executive in Neo@Ogilvy's operations group, claims that after she joined the IT planning team on IBM in 2009 she discovered a 200 percent discrepancy between what vendors were charging Neo@Ogilvy and what IBM was paying:

She complained about it to her superiors, including group planning director Addam Berger, who told her "heads could roll over something like this":

Instead of addressing the issue, Gladitsch claims she received a lousy performance review and in retaliation was ultimately demoted to the position of associate planning director on IBM contracts at the end of 2009. The suit doesn't say how much money was involved but alleges it was "millions." It also does not name the media vendor. After BNET broke the story, an Ogilvy spokesperson told Ad Age:

This suit is absolutely without merit and there was never any overbilling by Ogilvy.

Ogilvy, a unit of WPP (WPPGY), has yet to respond to the suit, which was filed Feb. 9. The overbilling occurred through Q1 2010 and then ceased, Gladitsch claims. She is still with Ogilvy.